--Loss estimated by television industry estimated at 850 cr due to demonitization. Key broadcasters affected. Ad rates for broadcasters have come down by nearly 50%.Due to that they have curtailed down their movie acquisition budget.Lower deals made inventory to go up.

-Slowdown continued till this quarter. But towards end of quarter things have started looking up.

Would like to understand here, how much does Shemaroo benefit from this launch ?wether this partnership is a revenue sharing model or a fixed amout is paid to shemaroo for providing the content as scheduled.

Shemaroo Conference call key discussion points:The company revenue from traditional line declined due to lower advertisement spend. In November-December 2016, industry estimate Rs 850 Cr advertisement loss. While subscription based revenue continue to show higher growth, due to decline in advertisement spending, the channels have curtailed down majorly on discretionary spending and conserving resources by cost cutting major, which has reflected in lower growth of movie acquisition and affecting Shemaroo topline. Decline in Shemaroo topline, are more driven by volumn decline then realisation which broadly remained stable. Due to slow down and also adverse market scenario,inventory and receivable days also got increased during March quarter. Receivable increased from Sep 2016 of Rs 187 Cr to Rs 191 Cr in March 2017, on lower sales base.

Despite growth in new media in total sales (which has higher EBITDA margin), margin of company did not shown major growth, as there was incresed spending on consultants which are part of G&A expenditure. The company has also added one fully equipped office which also reasulted in increased overheads.

The company's subsiadiries are expected to remain in investment mode for next 2-3 years and mostly loss making . That is also affected net profit on consolidated level.

Normal receivable days for the company is around 180-200 days for tradtional media and 90 days for digital media. Over next 3-4 years, growth in New media industry is expected to 35-40% of total sales of the company and then company expect average receivable days to decline to around 130-140 days as against currently being higher than 180 days.

The company had oringinally planned that investment mode would continue till Mid calender CY2018. However, increasing growth in new media and oppotunity to add good content in FY2016, the company expected now same to achieve by December 2017. From that point, the increase in content would be financed from internal accruals as against current fianncing from debt/equity dilution.

The company would not have any point more than 10% of balance sheet exposed to new movie production. The Mirza Juliet is only got Distribution with no capital at stake for Shemaroo.

There was concern raised about the company ability to get movies with ease of distributing movie by producer through various new participant like Amazon/Netflix. However, the new enterant are doing non-exclusive deal in first cycle. In fact, they would be more interested in acquiring content from single source aggregator like shemaroo who does all legal/technical due diligence and provide clean content rather than dealing with large number of independent producers. The large global players increase market for Shemaroo to use more effective content liberary.

During the year, net addition to content was Rs 85 Cr. The company expect debt to increase till June July 2017 and reach at peak level. Miniplex channel of the company is now on 4 cable/DTH service provide including Tata Sky, Airtel, DishTV and Hathway (last being latest). The channel peformance on DTH platform is better than expectiona. On Hathway, it is still at nascent stage to comment for.

The recent acquisition of content has been at higher price. The main driver for price increase is better oppoturinity to monitise content digital. Shemaroo gain from these indirectly, as past liberary has very limited (rather nil) cost of digital consumption, but would continue to monitise same at over life for perpetual content. This would be a major advantage vis other peer being a first mover.

The company shall be moving from investing to harvesting phase from December 2017, which is quicker then previous estimate of management.

The current cost of borrowing is around 11.5% and the company expect scope of reduction in same by 25-30 bps over next 12 months. The contract with global player like Youtube/Itune are ongoing. The company can add/delete content very quickly. In case of Hook/Jio, the deal varies counterparty ranging from 18-36 months. Global player like Youtube/Itune have standard method of payment, which is fixed revenue share, they offer same term to Shemaroo what they offer to Hollywood studio.

FY17 year end inventory and working capital requirement appear very high when compared with FY16 year end. That was mainly due to exceptionally good March 2016 number. The company received lumy revenue in March 2016 quarter which reduce working capital requirement which was not normal and was also disclosed on previous confrerence calls. When seen in relation to September 2016, level appears comparable. In Sep 2016, receivable days were around 160 day which has been maintained even in March 2017.

In New Media, the company operate in two segment, MVAS and Non-MVAS. Around 50% of revenue are from MVAS (or Telecom Eco system). Of balance 50% Non MVAS revenue, nearly 60 is Youtube kind of business (30% of New Media) and Jio/Spool etc account for balance 40% (20% of New Media revenue).

The media company and planner are evaluating the current marketing sitiuation, specifically about giviing higher media allocation to digital marketing. The recent spurt in usage and eyeball in digital market is more due to promotional offer from Jio. The media planner would like to establish that same is sustainable and not one time before committing large allocation. Time of consumer is limited and increased consumption of mobile is at cost of television or print media. There would be always some lag between increased consumption and higher allocation of media budget. That has also partially affected digital revenue. For instance, even though Youtube viewership gone up say by 40%, spend on Youtube increase only by 30% by the marketer, it would eventually reduce realisation per view for the company.

Advertisement inventory is a perishable comodity. Ad revenue lost to Broadcaster due to demonitisation are lost for ever. Due to lower revenue, boradcaster reduce discretionery spending affecting Shemaroo revenue from traditional segment.

My apology for putting compilation in very loose form. Since couple of days have passed there is scope for miscommunication. Investor is advise to do own due diligence before making any decision.

Following up on my earlier post, some long time back. I was intrigued by the Company's accounting policy; that is, being an intangible asset based company, why was it calling its rights an inventory. This also distorts its cash flow, as actually the amount invested on capex appears as change in inventory and thus CFO appears to be a distorted.

For my understanding, I started with Capiq spreads and made some changes:

CFO:1) added COGS in income statement as amortization in CFO.2) shifted cash interest paid from Cash flow financing to CFO3) Shifted change in inventory from CFO to Cash flow investing and also deducted the COGS amount (added in CFO) from CFI.

Now these numbers look healthy, especially the operating cash flow part; but look at the elevated cash flow from investing. This is primarily due to the high number shown as COGS. Now technically, for a company operating primarily in perpetual rights, this COGS-maintenance line should be viewed as additional capex (as it is buying incremental rights with this money as well).These numbers were for my understanding as to how its cash flows would look like, should it treat its rights as intangible assets instead of inventory.

So for a company with perpetual rights, which is amortizing or expensing out the amount over a period of 5 to 10 years, we should expect increasing asset turnover (as the rights completely amortized would also generate money). To analyse, this I used revenue/ average inventory (remember- inventory in this case in intangible assets). N-1 denotes FY17 revenue by average inventory of FY15 & FY16 (assuming company might take time to monetise its assets) and inventory turnover is FY17 revenue divided by average of FY16 and FY17 inventory.

What you will notice below is continuous decrease in inventory turnover, possibly implying that later purchases of the company are not resulting in enough sales/ revenue generation. One of the reasons could be that most valuable inventory for shemaroo is from the black & white era, with later titles from recent past not of significant value in terms of revenue generation!

One of the important points for investment thesis is content acquisition at reasonable prices and marketability of content. Although we don't have information about the acquisition price, we have the list of the movies. I wanted to understand what kind of movies does the company acquire along various axes like -

Budget (Low vs. Mid vs. High)

Genres (Comedy vs. Action vs. Drama etc.)

Actor Bias etc.

To check above parameters, I decided to use the data from 1995 to 2017 for only Hindi movies. I felt this shall give us some insight into the company's acquisition process.

Please note that I have looked up movies only from following website. If some movies owned by Shemaroo are not part of this website then insights might defer. Also, I have not tracked Kids, Devotional and Hindi Dubbed movies from the link below.http://shemaroo.com/genres/

SOME INSIGHTS

BUDGET AND QUANTITYFirst let's just look at number of movies for which the company owns rights by release year.

For a lot of movies after 2010, second phase of monetization might not have started, so we can give less importance to that data. It would seem like company looks to acquire about 10 movies every year.

The company did not go after very big ticket movies in the past. Based on public information, company looks to acquire movies which have budget of less than 10Cr. It does acquire some movies with larger budget of 30+Cr, but that number is relatively small. We need to keep tracking this part post company's investment drive.

One cursory observation is - if a mid budget movie flops really badly, Shemaroo seems to own it. Maybe they get a good deal on such movies?

Another thing I thought of doing is to compare the hit Bollywood movies of the year in which company has 10+ movies. e.g. Company owns rights for 12 movies for the year 2010, out of which I know only two movies - Bheja Fry 2 and Ishqiya. Now if you search for movies in this year, I thought there are many movies which would fit company's profile of movie acquisition - Udaan, Phas Gaye Re Obama, Karthik Calling Karthik, Housefull, Golmaal 3 etc.

Just to further make this point, let us look at one more year. Company owns rights for 14 movies for the year 2005. I recognize only two movies out of these 14 - Black and Sarkaar. There are still many movies which might fit Shemaroo's acquisition bill like - Page 3, Apaharan, No Entry, Salaam Namaste etc.

Maybe producers/distributors of these movies are themselves in second phase of monetization, or competition is doing monetization or Shemaroo does not have great relationship with these producers or they are just too expensive. Maybe super hit movie does not mean super hit economics for company?

GENREOverall, the company seems to be strong in Comedy and Action genre. I feel this is very good sign, as these two genres shall have very good eyeballs. I mean who wants to watch serious drama again and again, right?

One area where company is weak and can do better Romance/Romantic Comedy. I feel this genre shall also have very good eyeball numbers but company's collection seems to be a little weak.

Another observation is that - if the content has "adult" connotation to it, then company seems to prefer to buy such a movie (although not a large proportion). There are many such movies in the kitty of the company. This also would be very sticky business and good for digital business I suppose .

ACTORSThe company seemed to have acquired many (Pre-Supestar phase) movies of Salman khan that it can afford. I grew up watching a lot of his movies in school/college and almost all of them are owned by Shemaroo.

I also have had my fair share of being Govinda's fan. Also Mithun movies still remain very popular when friends meet. The company has a large part of their movies which has both these actors.

Other two Khans (SRK and Aamir) and Akshay Kumar are completely missing from company's kitty (Think Dil to pagal hain, Kuch kuch hota hain, Dhadkan, Baazigar etc.). Also I felt young stars like Ranveer Kapoor, Ranveer Singh, Imran Khaan etc. are also missing. Again may be prices are too high for them? or not great relationship with these producers?

Overall, based on available information, I will say that company has average/satisfactory track record of acquisition and not an exceptional one. I would like to learn more information about acquisition side of things, how industry works etc. Based on that, these conclusions might change.

Views invited!

Disc - I hold shares of Shemaroo. This is not a buy/sell recommendation. I am not a SEBI registered analyst. Please do your own diligence.

I have been using both Amazon Prime and Netflix India for last few months. And I was wondering at the widespread general "perception" - that both platforms provide access to mostly latest bollywood films. And Oh! there is so much new Content being generated, Shemaroo-type Nostalgia content is irrelevant on New Media/OTT Platforms. Felt compelled to compile a quick-n-dirty summary, to moderate that perception, somewhat.

Enclosed is the Excel with a list of movies on both platforms. As mentioned, Netflix India list is a complete list most probably, but Amazon Prime India - list is incomplete - there are still maybe 100-200 more movies (mostly older) in the list. Perhaps someone else can pick up on the enrgy to compile fully - and correct any mistakes in compilation, if anyShemaroo-Hindi-Movie-Targeting.xlsx (65.7 KB)

The point that can be made from above is that both the platforms cater to large number of relatively older films, and not just newer films. For Amazon India - a startling 65% of films are 17 years or older. 33% are 30 plus year old films (Pls crosschek data - hope I haven't made some inadvertent errors while compiling). Even for Netflix a good 26% are 17 years or older movies; 9% are 30 year old filmsAlso proportion of latest films provided, is rather low.Some of the real oldie movies on Amazon Prime -

Other "Perceptions" that need some moderation 1. Every Content Producer is now savvy about Digital Rights. They are all looking NOT to sell out (even next cycle rights). 2. Aggregation Model is under Threat - All platforms will NOW deal directly with all independent producers (even those with single or 3-5-10 films)3. Traditional Media (24-hour movie channels) are seeing much lower TRPs - Ad budgets are shifting elsewhere; Traditional Media Sales will start de-growing

There is no gainsaying, that should Traditional Media (~80% of Shemaroo business) not see growth recovery for a couple more quarters - there is the "Risk" of Balance Sheet getting stretched, Debt piling up.

However for the discerning investor - as always - there are ways to establish more granular data points to be better-informed as investors. Are we even asking the "right questions"??

Let's make sure of that first - rest will follow, easilyDisc: Invested

Hi Bheeshma,Thanks for updating the release years for some of the oldie films. The missing data I was referring to - was about about capturing the still not listed in excel - movies that show up in the Amazon Prime app ...I guess there are still about 100 to maybe 200 older films, that you can find in the App, which I haven't listed in the excel.

@Donald There were multiple times i felt interested in this business. However, more than accounting complexity for me (which was beautifully explained by @desaidhwanil and @dd1474 ), it was fear of technology disruption of the business model which led to not investing. What i understand is the USP of their business model is to understand lifetime value of second generation content to ensure that an IRR of 18% is achieved. With technology and analytics capabilities for each aspect of customer interaction through digital platforms, the data driven companies like amazon and netflix would be better informed to take decisions on content life time value and deal in content purchase sell directly from content owner. So, does not it make a dent in the core USP of sheemaroo?

Sorry about that. I could locate about 55 films in the amazon prime india database that are not in your datasheet. So here is the revised one.

And here is the sheet. Request to update and correct any glaring anomalies. However on the face of it 42% of the Prime library seems to be more than 16 years old.Shemaroo-Hindi-Movie-Targeting.xlsx (40.8 KB)

Exactly my thinking, if Equity IRR of 18% is all the management is targeting which mostly seem to be optimistic return levels, given so many variables how can an investor ensure that. Ultimately it looks the bet on management to deliver that. Moreover, since Shemaroo looks to be in lower order of value chain, realization of the value looks relatively pretty long and difficult to prove for all investments. In my experience of a field (different that media though fundamentally same), none of the IRRs promised has been delivered and hence my doubt if Shemaroo can deliver long term sustainable returns.

With technology and analytics capabilities for each aspect of customer interaction through digital platforms, the data driven companies like amazon and netflix would be better informed to take decisions on content life time value and deal in content purchase sell directly from content owner. So, does not it make a dent in the core USP of sheemaroo?

This is what most folks are worrying about. We can take some clues from what the Management had to say when asked about the above aspect in Q4FY17 Concall.

Q: Secondly if you see there are lot of developments happening in the new media front with entry of Amazon, Reliance Jio and all kind of players, which kind of trying to get sourcing movie directly from the production house, So basically like Amazon also trying to directly source from the producer of movies and kind of trying to do that, if that is the kind of thing then how do we see Shemaroo role in that context?

Basically two or three points I would say one is that a lot of what Amazon is doing or some of the other players are doing is focused on the first cycle of the business, it is basically for the new film that they are going. Now we are in fact not in that segment at all, so as far as catalogue is concerned in fact we are seeing that a lot of the deals are happening in the ecosystem are primarily one in nonexclusive basis and therefore an advantage to an aggregator because it is very difficult for an individual producer to reach out to its platform and for the platform to pay enough attention to the individual producer also and secondly the kind of library access that we have we are fairly deeply engaged with most of these platforms in terms of fulfilling their library requirement. In fact for many of them just to do reissue content to do one of deals and small deals or say 3, 5, 10 films is very uneconomical and unviable for most of the platform rather when we come with 100 film, 200 film kind of deals that it in fact puts us in a slightly more advantage position.

Q: The second point quickly what I want to ask is once again this is something that we hear and you are the best person to give an idea. Overall in the industry given whatever Amazon is doing or Netflix or other people are trying to do, is there any kind of threat or scare that the traditional content aggregators would find it difficult to get the content, given that these people can have a capital excess that practically no cost and therefore they are trying to spoil the market, is that kind of fear a true fear or it is more like just, if not correct?

On the new film front definitely the prices and values have gone beyond what we think currently are viable prices, but this is more for the first cycle new film kind of scenario and we do not know whether there will be any correction or this aggressive spree is going to continue. On the library catalogue or on the reissue films we have not seen really that kind of a type also or that kind of an unviability in terms of the prices being offered, so rather on the reissue films there are many other challenges of dealing with too many fragmented producers, legal, technical, there are too many challenges on that front because of which in fact we feel that someone like us should be in a good position to kind of cater to that segment basically.

Q: I wanted to ask there is a lot of buzz of Amazon and other points and you said that they are primarily buying into the first media cycle, so are they buying perpetual rights or are they buying three, four, five year size as of now?

Most of the deals that they have been doing are three to five year kind of deals.

Q: So, you may have opportunity to participate in those?

Yes.

We need to reflect on above, and then do our own homework - talking with Independent Content Producers, there are aggregators like PEN India Ltd reportedly working for Zee, and folks in the Media industry - including Media Buyers/Planners. Why not BELL the CAT - instead of constant opinion-bazi ? Please put your hand up for this work, and share your findings back at this thread.

The more important question in my mind - is when will New Media spends catch up with the New Media growth?? - probably not before 2-3 quarters - post Reliance Jio paid service stabilising and stable metrics available for media buyers/planners.That will re-energise new media content cycle.

The most important question at the moment may be to ask - Are traditional media spends back? Will they grow at 8-12% rates in near future, or earlier higher rates will come back? How soon? What happens to Shemaroo business if they DO NOT??

Basically two or three points I would say one is that a lot of what Amazon is doing or some of the other players are doing is focused on the first cycle of the business, it is basically for the new film that they are going.

But doesn't this contradict what we analyzed as the content base of Amazon. Based on the work done by you and Bheeshma, approx 50% of Amazon library is content older than 16 years. So Shemeroo managements above comment does not seem to be fully correct. Amazon is also getting these old content and quite a decent percentage. Would be interesting to know from where Amazon got this old library. Was it directly sourced from individual content owners/producers/ production houses or sourced from some aggregators like Shemaroo....If anyone is aware please add....

Also, in their P&L the change in inventory is shown as an expense; and in the cash flow same number is put in the adjustment for working capital. I would think the cash flow should have an outgo for new content acquisition which one would think should add to the assets which should be depreciated over time. I guess they are putting it in the inventory, but not sure why this is appearing both in the P&L and in the cash flow given the cash flow starts with the PBT.

Finally, Trade & other receivables appears as contributing negatively to cash flow in the CF statement, but in the BS trade receivables actually reduced. Perhaps this is due to short term loans and advances increasing; where (in part) the company seems to be giving loans to the promoters...

On inventory - the movie rights are considered by them as part of inventory and not fixed assets. Even though the rights are bought for 5+ years, they are not meant to be kept for 5 years and monetised. They are meant to be simply sold off to customers after doing value add like bundling and content modifications. Consider it like a back to back buy and sell arrangement with an uncertain time lag in between

On receivables and cash flow - the company's receivables have indeed reduced and are contributing to cash inflow but at the same time content advances have shot up from 17cr to 76cr. This is what is causing cash flow to be negative. That is why in cash flow statement the phrase is 'Trade and other receivables' and not just receivables.

Change in inventory is subtracted from costs as to that extent it has notbeen expensed off (means that those movies on which the company spent moneybut was not able to sell in that year are part of its inventory and hencereduced from cost in PL). But because it still spent money to acquire them,it will still be an outflow in cash flow and hence reduced from there.

Direct operating expenses are probably money spent by the company on legalpaper work, digitisation of movie print and other allied costs (just aguess not sure on this)